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The influence of commercial capabilities and orientations in new technology ventures

by Graaff, Joost Adriaan, MS


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1 Introduction

Start-ups introducing new technology on the market face the challenge to develop their new
product but also to discover their customers. The latter is a hazardous process which is best
recognized and organized as a separate process. In a large scale world-wide survey start-up founders
indicated late customer involvement as one of the key problems and reasons of firm failure
(Onyemah et al., 2013). The founders of the start-ups first developed their new products and
invested much money to then find that customers were sceptical towards their product or service.
The above problem can be prevented by and requires the timely development of commercial
capabilities. As Onyemah et al. (2013) finds, these entrepreneurs lack commercial capabilities. If they
have learned about sales and marketing they generally learned traditional sales and marketing which
assumes market boundaries to be known. This suggests that we need to learn more about how startups
can develop and use commercial capabilities and how these should ensure that the new
products developed will get accepted by the market.
The literature on the role of commercial capabilities of entrepreneurs is limited. The first stream of
literature includes work on commercial capabilities of small and start-up firms. The second stream of
literature includes studies on market/sales orientation & customer development of these firms.
However, these literature streams are still emerging and little integration of those streams has taken
place. Hence, the goal of this study is to review this work and add to our understanding of
commercial capabilities in small and start-up firms.
Commercial capabilities can be defined as commercial skills and knowledge of the founders that
distinguish them from the founders of other small firms” (Pitkänen et al., 2012; Y. L. Zhao et al.,
2012). These capabilities reflect how the founder is able combine the different business functions
and thereby create a competitive advantage (Day, 1994). In small and start-up firms, founders are
mainly the decision makers and determine the strategy, mission and vision of the company. The
commercial capabilities of these founders can therefore help an organization to develop innovations
fit for the market. Studies on these commercial capabilities mainly focus on the marketing aspect
and argue that the founder should be able to recognize valuable market information and transform
this information to customer value. Recently, researchers have also paid attention to sales
capabilities (Pitkänen et al., 2012). In the uncertain and unpredictable market of a small firm or startup
sales meetings deliver crucial feedback on the product or service. Integrating selling in the new
product development (NPD) process can therefore benefit successful commercialization. The
founder should thus develop, next to marketing capabilities, sales capabilities focused on
transforming customer feedback into customer value.
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This research as well pays attention to a market and sales orientation in small and start-up firms. A
market orientation (MO) can be defined as “an organization culture that most effectively and
efficiently creates the necessary behaviours for the creation of superior value for buyers and, thus,
superior performance for the business” (Narver and Slater, 1990). With an MO, small and start-up
firms gather market information concerning the customer and competitor which enables them to
discover market trends and respond to those trends. According to Narver and Slater (1990), an MO
consists of three components: customer orientation, competitor orientation and interfunctional
coordination. Recently, the role of sales has gotten more attention and researchers argue that a
sales orientation (SO) is needed in small and start-up firms, defined as “the founder’s desire to
change the status quo and by actively initiating new selling approaches and methods, like
experimenting with selling tactics, developing solid sales arguments, and scanning and identifying
sales opportunities in order to sell the products” (Pitkänen et al., 2012). With difficulties to finding a
first customer due to a lack of reputation, focussing on your sales activities as a start-up can be seen
as the solution for this problem. During these sales meetings, customers provide feedback on the
innovation early in the product development process which increases the chance of a productmarket
fit.
Although the importance of the commercial capabilities in small and start-up firms has been
recognized, little is known on how these capabilities can be used within the organization to secure
success and survival of these firms. Also, the influence of an MO or SO with regard to these
commercial capabilities is not investigated to a large extent.
Problem statement & research question
After introducing the problem context, the problem statement can be defined as follows:
Problem statement:
Founders of technology start-ups and spin-outs need to possess relevant commercial capabilities to
adapt to the uncertain and turbulent market. Although it is recognized that especially marketing and
sales capabilities are required, little is known about how and under what conditions these capabilities
are beneficial for these firms.

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Based on this problem statement research questions are set forward to further guide research.
Main research question:
How do commercial capabilities of the founding team affect the commercializing process of a
technology start-up firm?
Sub questions:




What is the role and influence of a customer orientation in the commercialization process of
a technology start-up firm?
What is the role and influence of a competitor orientation in the commercialization process
of a technology start-up firm?
What is the role and influence of a sales orientation in the commercialization process of a
technology start-up firm?
Research context
This master thesis describes research investigating the influence of commercial capabilities of the
founding team on firm performance in start-ups and small firms. The research addresses issues
raised by Holst Centre on how to commercialize their technology, with a focus on new ventures.
The Holst Centre is an independent open-innovation R&D centre aimed at developing generic
technologies and was set up in 2005 by IMEC and TNO, with support from the Dutch and Flanders
governments. Holst Centre is located on the High Tech Campus in Eindhoven, has over 150
employees and a commitment from close to 30 industrial partners.
Holst Centre mainly develops technology which will be marketed or implemented by a partner. In
some cases, no partner can be found and Holst Centre commercializes the technology themselves by
spinning it off as new ventures. However, as an R&D centre, Holst Centre is tailored to (co-) develop
technology for partners. This raises the problem that the Holst Centre lacks the capabilities to
commence (external) commercialization of developed technologies.
The issue mentioned above resulted in a study of 35 start-ups and spin-offs and their commercial
capabilities by Witte (2012). He proposed a direct effect of commercial capabilities of the founder,
consisting of marketing and sales capabilities, the performance of the start-up/spin-off.
Furthermore, the study hypothesizes that having a market and sales orientation benefits the
organizational performance as well. In line with Morgan et al. (2009) he modelled an interaction
effect between the commercial capabilities and orientations. The result of the research show that

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the hypothesized positive direct effect of the commercial capabilities is backed up by the data.
Having an MO or SO is proven to be non-significant for a start-up or spin-off.
The study of Witte (2012) has its limitations. The research lacks to investigate the role of the
separate components of an MO or SO. For the MO, these components are a customer orientation, a
competitor orientation and a shared interpretation. For the SO, these elements are sales
innovativeness and pro-active sales orientation. Investigating these components individually might
reveal a different effect on firm performance. Furthermore, no attention is paid by Witte (2012) on
result regarding a significant effect of the level of technology push on the performance of a start-up
or spin-off firm.
To address the issues of Witte (2012), the data of the research were re-analysed. This re-analysis
revealed interesting relationships which, together with a lack of empirical research in
entrepreneurship, led to the decision to extent the model of Witte (2012). To test the newly
developed model the original data set of Witte (2012) was extended from 35 to 68 cases, enhancing
for instance also the measure for the level of technology push.
Aim of the study
This study aims to extend the research of Witte (2012). First, the research model is further
developed by separating the components of an MO. Second, empirical data is collected and a second
analysis led to a revision of the research model. This exposed the variables influencing commercial
capabilities in start-up or spin-offs.
This data will be measured with identical items as Witte (2012), which justifies combining the data
sets. Empirical studies in entrepreneurship appear to be problematic due to the dynamic nature of
start-up and spin-off firms. Elimination of cases is not uncommon since failure of these firms is likely
to occur. Extending the data complements the few empirical studies on entrepreneurship.
Scope
In this research, we make a distinction between small firms and entrepreneurial firms.
Entrepreneurial firms or start-ups/spin-offs are by nature small firms. However, small firms are not
necessary start-ups, because small firms can also be established firms, typically older than five years.
Many of small firm’s problems are shared by start-ups. This explains why in the Journals on small
businesses there is more attention for entrepreneurial topics, e.g. founding teams or personal
involvement of the owner (H. Zhao et al., 2010). Therefore, we include small firm marketing/sales in
this study.

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Included in this study as well are topics that are not specifically aimed at entrepreneurship, but do
have an important application in the entrepreneurial setting, e.g. effectuation and early customer
involvement (Coviello and Joseph, 2012; Read et al., 2009).
Outline
The following topics will be discussed in this master thesis. In the second chapter we review the
current literature on commercial capabilities in small firms. The third chapter shows the
development of the conceptual model accompanied by the relevant research hypotheses. The fourth
chapter provides the research methodology which includes the research context, the sampling frame
and the data collection method. In the fifth chapter the results of the data analysis are presented.
Finally, the sixth chapter will conclude the master thesis with a discussion, including managerial
implications and limitations of the study.

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2 Literature background

An online search generated a set of 27 articles. The articles were identified using key words such as:
commercial capabilities, entrepreneurship, small firms, sales, marketing or combinations thereof.
After reading the materials, the articles were tabulated for further analysis and relevant categories
were labelled. This resulted into two relevant research streams:

1. Commercial capabilities in small and start-up firms
2. Market/Sales Orientation & customer development in small and start-up firms
These research streams will be described into detail below.

2.1 Commercial capabilities in small and start-up firms

The Resource Based Theory (RBT) states that firms achieve better performance than others because
they possess resources that are valuable, rare, and difficult to imitate and substitute by competitors
(Barney, 1991). When firms acquire and deploy those resources advantageously, they can
differentiate themselves on the market and thus create a sustainable competitive advantage.
Researchers indicate that capabilities are needed to recognize these resources as valuable and
transform them into customer value (Amit and Schoemaker, 1993; Day, 1994). In small firms and
start-ups, these are mainly the founder’s commercial capabilities since human capital in these firms
is limited and the strategic decision making is often done by the founders. Therefore, commercial
capabilities in small firms and start-ups can be defined as “commercial skills and knowledge of the
founders that distinguish them from the founders of other small firms” (Pitkänen et al., 2012; Y. L.
Zhao et al., 2012). More specifically, researchers indicate that founders should possess marketing
capabilities. Recently, the role of sales has gotten more important in the literature and researchers
argue that capabilities in selling are needed as well (Pitkänen et al., 2012).
Results of studies on small and start-up firms show the benefit of these marketing capabilities.
Mӧller and Anttila (1987) found that capabilities in small firms involve gathering and combining
information and especially the successful small firms were in possession of these capabilities. The
results of Ripollés and Blesa (2012) as well show that the performance of new ventures benefits
from the ability to collect customer information, networking capabilities, and transform this
information within the organization, spanning capabilities. Accordingly, Santos-Vijande et al. (2012)
report that possessing spanning capabilities, focused on managing and deploying market
information within the organization, benefits small firms. Focused on start-ups, Merrilees et al.
(2011) as well report a beneficial influence on the business performance when a firm is capable of
collecting market information and linking this information to the internal functions of the
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organization. The founder should thus be able to recognize marketing opportunities and transform
these opportunities into customer value. He or she should be a jack-of-all-trades with an external
focus, e.g. identifying market trends, and an internal focus, e.g. integrating business functions
(Alvarez and Busenitz, 2001).
With a proven benefit of marketing capabilities in small firms and start-ups, researchers have begun
to explore how and under what conditions these capabilities deliver a benefit on firm performance
and argue that capabilities are especially beneficial when linked to an MO of a small or start-up firm
(Merrilees et al., 2011; Pitkänen et al., 2012; Qureshi and Kratzer, 2011). These studies reason from
a holistic perspective on commercial capabilities and argue that capabilities are needed to manage
the firm’s resources. As Merrilees et al. (2011) state, resources per se cannot do anything. What is
important is the capacity to utilize resources effectively, that is, a capability. In small and start-up
firms, resources are limited and having an MO can be seen as a unique resource. As discussed above,
capabilities are needed to manage such an intangible resource. In support, Qureshi and Kratzer
(2011) argue that marketing capabilities of firms are influenced by both external and internal factors,
including an MO.
Recently, Pitkänen et al. (2012) reveal that the capabilities of the founder can, besides an MO, be
linked to an organization-wide sales orientation of a start-up. This requires certain sales capabilities
next to the marketing capabilities discussed earlier. The sales capabilities of the founder can trigger a
sales culture which is needed to close the first important sale of the start-up (Pitkänen et al., 2012).
They state that a founder’s sales capabilities, i.e. knowledge and skills accumulated through work
experience and educational background in selling, helps to identify sales opportunities in the market.
With these capabilities the founder is capable of closing a first important deal which provides a
sustainable customer relationship. When mutual trust has been achieved, this customer can refer
the start-up to other prospects and thus grant access to the main market, a process which is
considered as difficult for start-up companies (Moore, 1991).
Although researchers agree on the relationship between marketing/sales capabilities and an MO/SO
in a small or start-up firm, the findings differ on the causality direction. Some researchers argue that
an MO generates a competitive advantage via the marketing capabilities of a firm (Merrilees et al.,
2011; Qureshi and Kratzer, 2011). These studies state that a n MO generates valuable market
information which needs to be transformed into a competitive advantage and for this process, a firm
needs to possess certain capabilities. In contrast, Pitkänen et al. (2012) posit that the capabilities of
the founders influences the company’s performance via human actions and social processes, a

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commercial orientation, within the firm. Since none of the studies has collected longitudinal data,
ambiguity exists on the casual direction between these concepts.
Conclusion
Findings report that both marketing and sales capabilities are needed as a founder. These
capabilities involve recognizing and transforming market information and learning from the
customer in sales meetings. Several studies reason in line with the RBT that marketing and sales
capabilities on itself do not deliver a competitive position in the market place and these capabilities
influence the business performance through the culture of an organization, i.e. a market or sales
orientation. Ambiguity however exists on the type of relation between these commercial capabilities
and orientations and especially literature regarding this topic on small and start-up firms is yet
undeveloped.

2.2 Market/Sales orientation & customer development in small and startup
firms

MO is a concept developed and used primarily in marketing and management literature describing
large organisations. Recently, researchers on small businesses and entrepreneurship have also
adopted the MO concept to describe the marketing activities of small firms and start-ups. The results
of these studies reveal that these firms mainly rely on their customers for the acquisition of market
information (Blankson and Cheng, 2005; Blankson et al., 2006). The vital role of the customer has
been highlighted by studies on the importance of having a reference customer as a small or start-up
firms, who is able to refer the firm to other customers. With little experience in customer
development and relationship building, researchers argue that the sales activities of a firm are
crucial to identify and connect with these customers. Therefore, recent attention has focused on the
benefit of an SO, next to an MO, in small and start-up firms.
2.2.1 Market orientation
Studies on MO in small firms and start-ups adopt two perspectives of MO, namely a behavioural and
a cultural perspective. The behavioural perspective defines an MO as “the organization wide
generation of market intelligence pertaining to current and future customer needs, dissemination of
the intelligence across departments, and organization wide responsiveness”, introduced by Kohli and
Jaworski (1990).

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The three elements determining such an MO are:
1. Generation of market intelligence pertaining to current and future customer needs.
2. Dissemination of the intelligence across departments.
3. Organization-wide responsiveness to this market intelligence.
The cultural perspective defines an MO as “an organization culture that most effectively and
efficiently creates the necessary behaviours for the creation of superior value for buyers and, thus,
superior performance for the business”, introduced by Narver and Slater (1990). The three elements
underlying this definition are:

1. Customer orientation.
2. Competitor orientation.
3. Interfunctional coordination.
Although literature adopts both definitions, the cultural perspective of MO seems to fit the small
firms and start-ups context best. This perspective takes the external environmental into account
where the behavioural MO is more focused on the internal organization. Especially being aware of
the competition as a small firm reveals to be a crucial inclusion discussed later on in this chapter.
Despite the limited number of studies on MO in small firms and start-ups, a congruence has been
reached on the benefit on firm performance. First to investigate an MO in small firms, Pelham and
Wilson (1995) found that new product success and firm growth was mainly due to a high level of MO
within the firm. Accordingly, Mahmoud (2010) discovered that an MO in small and medium
enterprises (SMEs) directly influences the business growth and profitability of the firms. In support,
Keskin (2006) reveal an indirect benefit of MO where being market oriented increases learning
within a small firm and subsequently delivers more innovative products which generate business
performance. These findings relate to several recent studies, reporting an indirect effect on the
business performance of MO trough the mediating role of capabilities (Merrilees et al., 2011;
Qureshi and Kratzer, 2011).
The benefit of an MO in small firms and start-ups is mainly due to acquiring crucial customer
feedback. Blankson and Cheng (2005) revealed that marketing in small firms had many similarities
with the MO concept, but a difference could be seen on the aspect of customer service, which was
more present than the other marketing dimensions investigated. In line with these findings,
Blankson et al. (2006) showed a strong role of the customer and revealed that small business owners
had developed a distinctive MO in which they acquired their market information by customer
engagement. Formal marketing methods were outsourced, e.g. performing market research. As
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Sciascia et al. (2006) conclude, formal marketing departments are often absent in small firms and
market information is collected with the use of informal, unplanned marketing methods, such as
acquiring feedback on the product or service by engaging with the customer.
Since small and start-up firms are highly dependent on the customer, the importance of focusing on
the right customer, a reference customer, to acquire product feedback has been highlighted by
several studies (Popovic and Fahrni, 2004; Ruokolainen, 2005). A reference customer can give
feedback on the innovation and provide access to the main market by referring firms to potential
customers on the market. As Popovic and Fahrni (2004) found in a case study of a Swiss company
involved in watchmaking components, high-tech start-ups use their first customer to access the
main market. The start-up firm made use of Swatch, an established watch brand, as their reference
customer and after a successful collaboration the start-up firm was recommended to other potential
customers on the market. In line with these findings, Ruokolainen (2005) reveal in their research on
small Thai high-tech software firms that the success of a firm depended on whether the firm could
find a customer willing to act as reference. The process of identifying and collaborating with a
reference customer can thus benefit a firm in two ways, namely by providing a reference on the
market and by delivering feedback on the product or service. Since small and start-up firms are
generally undeveloped and have not yet built the required skills, collaborating with the customer is a
fuzzy process characterized as trial and error.
2.2.2 Customer development
With the benefit of involving a reference customer in small and start-ups firms, studies have paid
attention on how to build and involve customers in these firms. These studies emphasize the need
to validate the customer early on instead of market a fully developed product. As Lynn (1996)
discovered in case studies on firms involved in radical innovations, successful firms had involved the
customer early on in the life cycle of their products. By involving the customer early on, firms are
able to probe and learn from the market. This probe and learn process by differs from conventional
market testing, where market testing is done in a late stage of development and just prior to fullscale
introduction. This unconventional probe and learn process comprises of three stages:

1. Observing a site or customer before probing
2. Introducing the probe, i.e. an early version product or service
3. Observing the effect on the site/customer
Accordingly, Coviello and Joseph (2012) identified five beneficial customer activities in this
unconventional product development process in young and small technology firms: opportunity
recognition, customer-based funding, development and testing, wider commercialization and
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